Apple Launches Cheaper iMac for $1,099 - Analyst Blog

Apple Inc AAPL recently launched a new low-priced iMac. The 21.5-inch desktop features 1.4 GHz dual-core Intel INTC Core i5 processor, which brings it on par with MacBook Air, but is slower than the previous entry-level iMac version.

The new iMac carries a price tag of $1,099, which is cheaper by $200 from the previous entry-level iMac. Apple announced that the mid-range iMac featuring a 2.7 GHz quad-core i5 processor will now be available at $1,299.

We believe that the new cheaper iMac is an attempt from Apple to woo new customers. The low-priced offering not only targets existing iPhone, iPad or iPod users but also those who are yet to enter Apple's ecosystem. We believe that the new iMac will attract small and medium enterprises that will drive Apple's market share in the near term.

Although iPhone continues to drive Apple's growth, Mac devices have been a consistent contributor over the years. In the second quarter, Apple shipped 4.14 million Macintosh, up 5.0% from the year-ago quarter. Revenues increased 1.0% year over year to $5.52 billion. The strong growth in unit sales was due to robust performance from MacBook Pro and MacBook Air.

PC shipments, though a continually disturbing factor so far, have showed signs of improvement of late. Per the latest report provided by research firm IDC, 2014 PC shipments are expected to contract 6.0%, marginally lower than a decline of 6.1% predicted by the firm in March this year. PC Shipments Decline Narrower than Expected?

This is encouraging for Apple as the low-cost offering will intensify competition in the PC market, where Lenovo and Hewlett-Packard HPQ are the current dominant force. Despite contraction in PC market, Apple's Macintosh continues to maintain its stable market share, which is a significant positive. We believe that frequent operating system updates and free upgrades will drive Mac user base in the long run.   

Of late, Apple has shown signs of resurgence based on its expanded capital program, 7:1 stock split, upcoming new iPhone, new OS X Yosemite, iOS 8 and Healthkit. Reportedly, Apple is set to launch the much anticipated iWatch device in October this year, which will be key growth catalyst. Further, Apple recently settled the e-Book pricing case with the states, which removes a major headwind, in our view.

Although competition from Samsung remains stiff, we believe that the new smartphone from Amazon.com AMZN will not hurt iPhone sales in the near term. Moreover, Apple's new strategy of offering products for price sensitive customers (iPhone 5C and the new iMac) will eventually boost its growth in the Asian markets.

Currently, Apple has a Zacks Rank #3 (Hold).